This Is How Much A Million Will Earn If Placed in a Time Deposit

For most personal or even business transactions, a million pesos is a lot of money. It can buy a good car or even a low-cost housing unit especially outside Metro Manila.

However, if placed in a time deposit account, even for a year or more, it’s not enough to earn interest that will keep you ahead of the rising inflation rate, which hit 4.6 percent in May 2018.

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A look at the various time deposit products of the country’s biggest universal banks by assets (and their respective savings banks) shows that annual interest rates on placements of one year or less ranged from only one percent to 3.5 percent as of June 25, 2018. These are way below the latest inflation rate.

Entrepreneur Philippines checked the websites of the country’s 12 largest universal banks by assets and of their respective savings and compiled data on interest rates on their time deposit products. The table above shows the data from eight banks that provided interest rates on their time deposit offerings on their websites.

A scatter graph of interest rates of Php1-million deposit across different periods of placements showed that deposits left with the banks for longer periods of time generally earned more in interest rates. However, even deposits placed with the banks for up to five years still earned less than the inflation rate.

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On the other hand, placements of less than a year earned even lesser interest rate. For short-term placements, such as one month, Php1 million can earn from a low of 0.5 percent to up to 2.5 percent. For six months, it can go from one percent to 2.625 percent.

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While different banks are expected to offer varying interest rates depending on their financial position and marketing strategy, some patterns have emerged that savers can use when selecting banks where to put their money.

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Offhand, the country’s three biggest banks—BDO Unibank Inc., Metropolitan Bank & Trust Co. and the Bank of the Philippine Islands—all offer the lowest rates of only one percent. To enjoy higher rates, one must look to the other banks outside the Top 3 biggest lenders by assets.

There is also a discernible difference in interest rates offered by a universal bank and its savings bank subsidiary. For example, while Metrobank offers an interest rate of one percent on a Php1-million placement of one year, its thrift bank unit, Philippine Savings Bank, offers an interest rate of 2.25 percent on the same amount and term. The same pattern can be observed in the case of BPI and BPI Family Savings Bank and BPI Direct Savings Bank, as well as RCBC and RCBC Savings Bank.

Despite these variations, interest rates on Php1-million placement in time deposits are being overtaken by inflation. This suggests the need for diversification into higher-yielding but also higher-risk investments to keep ahead of rising consumer prices.